CSC Holdings - CIMB Research 2018-04-09: Upbeat On Turnaround In 2018

CSC Holdings - CIMB Research 2018-04-09: Upbeat On Turnaround In 2018 CSC HOLDINGS LTD C06.SI

CSC Holdings - Upbeat On Turnaround In 2018

  • CSC is a ground engineering solutions provider for residential, commercial, industrial and infrastructure projects in both the private and public construction sectors.
  • CSC is more regionally diversified compared to its peers. Non-Singapore operations accounted for 33% of FY17A revenue.
  • CSC’s management is optimistic about demand prospects this year, partially due to the slew of en-bloc projects that are expected to launch soon.
  • Trading at 0.3x FY3/17 P/BV.

Regional ground engineering solutions provider 

  • CSC Holdings was founded in 1975 and is one of Singapore’s largest foundation and geotechnical engineering specialists, and was listed on the SGX Mainboard in July 1998. It has a total regional workforce of about 1,500 employees with operations in Singapore, Malaysia, Thailand and Vietnam.

Prominent clients in both the private and public sectors 

  • Some of the company’s high profile projects include the S$240m diaphragm walls and bored pile foundation for Marina Bay Sands that CSC completed in 2008. 
  • Customers include government bodies such as the Housing Development Board and private real estate developers such as City Developments Ltd (CIT SP, Add, Target Price S$13.44).

Quality of orderbook improving 

  • CSC believes that more contracts requiring foundation and geotechnical engineering works will come its way this year, and that the quality of its orderbook is improving. CSC expects that projects that were won previously with low prices will likely be cleared off its orderbook by 1H18 and that it will have a significant pick-up in net margin from 2Q19F onwards. 
  • Recent orders include foundation works for the Kim Chuan Depot (c.S$50m), which management expects to be completed over 18 months starting from Mar 2018.

Equipment currently at optimal utilisation 

  • CSC shared that the current utilisation rate of its machinery is at the optimal level of over 80%, factoring in the remainder of equipment undergoing maintenance. 
  • CSC will be renewing a portion of its fleet to bigger machinery for piling and other ground works, and believes it will continue to have an edge over competitors for works that require more advanced equipment.

Upbeat on sizeable prospects ahead 

  • CSC believes that the upcoming Punggol Digital District could offer a package involving foundation works up for tender that could potentially be bigger than its S$200m order for the Marina Bay Sands development in 2007-2008. 
  • Other upcoming sizeable prospects could come from Tuas Mega Port and the relocation of Paya Lebar Airport.

Company outlook 

  • The group maintains a cautious view on prospects in 2018 and expects any significant pick-up in activity to gain momentum only in the second half of the year. 
  • CSC will continue to proactively build up its orderbook, while optimising its asset utilisation and operational efficiency. Construction orderbook stands at S$210m as at 6 Feb 2018, with the bulk to be delivered within the next nine months, according to management.

Historical valuations 

  • CSC is trading at FY17A P/BV of 0.3x. CSC was loss-making in FY17A and did not declare a dividend.

Target Price: N/A

(This report is linked to Singapore Construction Companies - CIMB Research 2018-04-09: Key Takeaways From Conference)

Colin TAN CIMB Research | http://research.itradecimb.com/ 2018-04-09
CIMB Research SGX Stock Analyst Report NOT RATED Maintain NOT RATED 99998 Same 99998

* This Eyes On the Ground report represents a preliminary assessment of the subject company, and does not represent initiation into CGS-CIMB's coverage universe. It does not carry investment ratings and CGS-CIMB does not commit to regular updates on an ongoing basis.